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Something To Be Proud Of

In this time of intense angst about America’s greatness or, as some argue, loss of it, about weak economic growth and perhaps waning U.S. influence in the world, here’s a perspective you won’t hear much: America’s economy will not be the world’s largest for much longer, and that’s something for Americans to be proud of.

In yesterday’s note I fleetingly mentioned a new study by PriceWaterhouse Coopers forecasting that China’s economy will be bigger than America’s before 2030 (maybe well before then) and India’s will also be bigger before 2050. The U.S. will rank third, and in fourth place, the researchers speculated, could be Indonesia.

China, India, the U.S., Indonesia – do you notice anything about that list? Tomorrow’s ranking of countries by GDP is today’s ranking by population.

That fact tells us something important. GDP, after all, is just population times productivity. The U.S. has long been the No. 1 economy with the No. 3 population because the productivity of our labor and capital has been so enormously greater than productivity in China or India. What’s happening, simple yet profound, is that other countries are catching up to our productivity. China and India still have a very long way to go, but obviously they needn’t match us to exceed our GDP; with populations over four times ours, they only need to achieve one-quarter of our productivity. That’s what they’re in the process of doing.

Why should we Americans be proud of that? Because this is what we wanted, and we were right to want it. In 1950, the year after Mao’s communist revolution, China’s economy was actually 49% bigger than Japan’s. But by 1977, the year before Deng Xiaoping famously released China from doctrinaire communism, Japan’s economy had rocketed ahead to be 63% bigger than China’s withering economy. U.S. policy under administrations of both parties had consistently been to encourage China to liberalize its economy. We figured it would be good for us, and it has been. It has also been stunningly good for the Chinese people, 800 million of whom, says the World Bank, have been lifted out of poverty by China’s market-based reforms.

India’s economy was being strangled by socialism until a crisis forced it to open up in 1991, again with U.S. encouragement, and again, hundreds of millions of the country’s poorest have benefited, according to the World Bank.

Of course U.S. policy was not the only factor or the main factor in the transformation of these economies. But we tried to help it happen, and it happened. One result is that differences in national productivity are diminishing, so that population and GDP more nearly align, and the world is dramatically less poor.

That trend is unlikely to stop anytime soon, which means we will indeed be No. 3 sooner or later. America will have a hard time celebrating that development. But it’s an inevitable part of the more prosperous world we’ve been working toward for decades.

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What We’re Reading Today

VW considers action against former chairman
Former Volkswagen Chairman Ferdinand Piech reportedly told former CEO Martin Winterkorn and a committee about emissions cheating six months before it became public. The report by a German newspaper says Winterkorn claimed the emissions issue was under control. VW says it “repudiates the assertions” and will consider legal action against Piech, who has not yet commented on the report.  Reuters

Judge blocks Anthem-Cigna merger
A federal judge said the merger would increase prices and decrease competition in health insurance. The proposed $48-billion deal between Joseph Swedish‘s Anthem and David Cordani‘s Cigna is the second planned health insurance mega-merger to be blocked in the past month, after Aetna-Humana. It’s unclear if the companies will appeal. Washington Post

Trump attacks Nordstrom… 
…and the stock surges. The retailer dropped Ivanka Trump‘s clothing line, provoking a tweet from President Trump fuming about the decision. While the tweet may have violated presidential ethics guidelines, Nordstrom’s stock jumped over 4%, breaking a pattern set by Toyota, Lockheed-Martin, and other stocks that have tanked in response to Trump Twitter criticism. Fortune

Twitter tumbles
Jack Dorsey‘s company reported fourth quarter results that missed expectations on total revenue, a concerning trend even as Trump‘s use of the platform raises its profile. The stock fell 10%. CNBC

Building Better Leaders

Family companies practice stronger stewardship
A new study finds that family-run firms score higher on a scale measuring employees’ and managers’ desire to do good work and build the company, as opposed to just get through the day. That tendency also helps family firms innovate. Kellogg Insight

Long term thinking wins out
Large and mid-cap companies focused on long-term strategies have outperformed companies seeking quarterly wins on revenues, profits, and other measures, says new research from McKinsey. Fortune

If co-workers’ noises make you furious…
…and not just annoyed, you might have a disorder called misophonia. It’s incurable but can be managed so it won’t sink your career. Inc.

Political Comments

Supreme Court nominee calls Trump attacks on judges “demoralizing”
Judge Neil Gorsuch, who Donald Trump nominated to the Supreme Court, was responding to the president’s statements calling a judge in the immigration case a “so-called judge” and his ruling “ridiculous.” Gorsuch is meeting with senators before his confirmation hearing and may have been trying to distance himself from the president. Fortune

Trump sends letter to Chinese president
The letter to President Xi Jinping calls for a “constructive relationship” with China as the only option for the two countries. It’s a stark difference in tone from Trump’s previous statements on China. BBC

Intel to revive a plant in Arizona
Brian Krzanich‘s company will invest $7 billion to revive the Fab 42 plant, which will create 3,000 jobs over the next three to four years. Krzanich announced the news at the White House with Trump, who cited it as a symbol of his efforts to bring back manufacturing jobs. Intel says the decision had nothing to do with any particular government policy. CNET

Fortune Reads and Videos

CEO Bob Iger: A trade war with China…
…would be “damaging to Disney’s business and to business in general.” Iger joins a number of other CEOs who have said the same. Fortune

Tim Cook continues to fight the immigration ban
Speaking at the University of Glasgow, Cook said that if people don’t speak out, it’s “as if we’re agreeing, that we become a part of it. It’s important to speak out.” Fortune 

The 50 Best Workplaces for giving back
Salesforce ranks No. 1, with philanthropic donations exceeding $45 million. Fortune

Snap purchases $1 billion of Amazon cloud services
Snap also relies on Google Cloud services, to which it has committed $2 billion over the next five years. Fortune

Quote of the Day

“The supervisory board of Volkswagen AG emphatically repudiates the assertions made by Ferdinand Piech as reported recently in the media…The board of management will carefully weigh the possibility of measures and claims against Mr Piech.” — Volkswagen’s statement in response to a media report that former Chairman Piech notified its former CEO about emissions cheating six months before the matter became public. Reuters

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Produced by Ryan Derousseau
@ryanderous
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